Chapter 6: Stock Market, Information, Financial Market Efficiency
Sole Proprietors – sole owners of a firm and people who own a firm with partners have
unlimited liability for the firm’s debts. The owners of these firms run the risk that if the firm
goes bankrupt; anyone the firm owes money to can sue the owners for their personal assets.
Corporation – a legal form of business that provides owners with protection from losing
more than their investment if the business fails
Limited Liability – a legal provision that shields owners of a corporation from losing more
than they have invested in the firm
Stock Market Index – an average of stock prices that is used to measure the overall
performance of the stock market.
- 5,100 publicly traded U.S. firms represent 10% of firms listed on stock exchanges worldwide
1. Dow Jones IndustrialAverage – average of the prices of the stocks of just 30 large firms
which including [Coca-Cola, Microsoft, Walt Disney]
2. S&P 500 – includes the 30 stocks that are in the Dow as well as stocks issued by 470 other
large companies covering about 75% of theAmerican equity market by capitalization.
[Apple, AT&T, Dell,American Express]
3. NASDAQ – includes 2750 stocks that are traded over the counter market. It includes stocks
issued by many smaller technology firms that are not included in other index. [Tesla Motors,
Does the performance of stock market matter to the economy?
- Fluctuation in stock prices can affect the economy by influencing the spending of households
• Rising stock prices => increase spending => increase in production and employment.